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Bills in rubles for Russian gas exports days away, Moscow tells West

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Russia warned the West on Friday that billing in rubles for billions of dollars of natural gas exports to Europe could be just days away, Moscow’s toughest response yet to crippling sanctions imposed by the West for the invasion of Ukraine.

With the Russian economy facing its gravest crisis since the years that followed the break-up of the Soviet Union, President Vladimir Putin on Wednesday hit back at the West, ordering that Russian gas exports should be paid for in rubles.

Putin said the West had declared economic war by freezing Russian assets, and so Russia saw no point in receiving dollars or euros for Russian exports anymore.

The Kremlin on Friday said Putin had ordered Gazprom, the world’s biggest natural gas company, which supplies 40 per cent of Europe’s gas, to accept export payments in rubles, and that it had just four days left to work out how.

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“There is an instruction to Gazprom from the president of the Russian Federation to accept payments in rubles,” Kremlin spokesperson Dmitry Peskov told reporters. “This information will be brought to the purchasers of Gazprom products.”

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Gas buyers have been seeking guidance on how they could get the rubles to make any such payments, given the extent of the sanctions on Russia.

“Ruble payments are somewhere between very difficult and not possible for the majority of European buyers to organize, and certainly not at short notice,” Jonathan Stern, Distinguished Research Fellow at the Oxford Institute for Energy Studies, told Reuters.

If Gazprom insisted on ruble payments and stopped deliveries if payments were not made in rubles, “then in my view this would be a violation of contract terms,” he said.

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Payments in rubles would shore up the Russian currency, which has plummeted since the invasion on Feb. 24. Putin’s speech lifted the ruble nine per cent against the dollar on Wednesday.

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Meanwhile Dutch gas prices, the European benchmark, have spiked due to concerns over whether countries will be willing or even able to pay in rubles.

POLICY UPHEAVAL

Putin’s move, announced just as the European Union was debating additional sanctions on Russia, amounts to one of the sharpest turns in Russian gas politics since the Soviets built gas pipelines to Europe from Siberia in the early 1970s.

The man who has been Russia’s paramount leader since 1999 has long railed against the dominance of the U.S. dollar, which he casts as an instrument of a U.S. “empire of lies” aimed at destroying Russia.

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Moscow was blindsided by the West’s ability to freeze the US$300 billion of Russia’s US$640 billion “rainy day” reserve that was parked abroad.

Russia says the West has defaulted on its obligations to Russia, and that Moscow’s post-Soviet delusions about the West, and the use of dollars and euros, are over.

The Kremlin has refused to discuss just how far Putin could go with his bid to conduct trade in rubles; Russia is one of the world’s top exporters of oil, gas and metals – which are all largely priced and settled in U.S. dollars.

The mechanism by which up to US$320 billion a year of gas exports will be paid for in rubles is still unclear. Euros account for 58 per cent of Gazprom exports, U.S. dollars 39 per cent and sterling around three per cent, according to the company.

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German Finance Minister Christian Lindner on Friday advised German energy providers not to pay for Russian gas in rubles, as demanded by Moscow.

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Even the Communist Soviet Union accepted foreign currency for its energy exports, and it was not immediately clear if the change to ruble payments would amount to a breach of contract.

Many importers have said long-term contracts with Gazprom stipulate payment in either euros or U.S. dollars.

However, despite redoubling efforts to reduce their reliance on Russian gas, European consumers have few short-term options for covering their gas needs elsewhere.

No reason to accept demands, Macron says

French President Emmanuel Macron said on Friday there was no reason to accept the demand from Russia to pay in roubles for Russian gas.

“All the texts that have been signed are clear. This is forbidden,” Macron told a news conference after a European Union summit in Brussels.

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“European firms that buy gas and which are operating on European territory have to do so in euros. Therefore it is not possible today to do what is being demanded, it is not contractual,” added Macron, referring to the Russian demands to be paid in roubles.

He said he did not believe that Russia wanted to break its contracts, but if that was the case, then Moscow should say it explicitly.

“The objective of this announcement, I think, is to find a way around sanctions, but it does not respect what was signed so why should we apply it?” he said.

(Reporting by Reuters; Editing by Guy Faulconbridge, Alison Williams, Andrew Heavens and Toby Chopra)

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